Thinking Of Buying A Vacation Rental? Start With The Big 4!

It is no secret that the real estate market is hotter than it has been in over a decade. A lot of factors seem to be playing into this. Record low interest, a squeeze on inventory, more and more people working from home moving to the area, and of course FOMO. As many are looking for their next primary residence or moving to the Cape Fear region, a large percentage are capitalizing on these trends and snapping up traditional vacation homes in our beach towns at a furious pace. 

Ever since the “re-opening” of North Carolina to travel during the COVID pandemic, the demand for vacation rentals in leisure, drive-to markets has been at record highs. This, in addition to some other economic factors, has put a light squarely on vacation rentals as a preferred accommodation of choice for travelers, and the Cape Fear and Brunswick Beaches regions. Vacation rentals have officially graduated from an “alternative accommodation” category to a mainstream real estate investment asset class. 

We get calls every day with questions about what to look for when buying vacation rental investment property. With so much attention now focused on the vacation and short-term rental sector, it can be challenging today to find the “right” property, especially in a heated market. It is important to look at all the factors that constitute a traditionally successful vacation rental, even though it might not fit your perceived vision of what that might be.

At Carolina Retreats, we analyze and perform comparison models every day for clients trying to find the “right” vacation rental property. Here are just some of the many variables we look at when going through our process of due diligence:

1. Location – This one is obvious, as this one factor can have a major impact on potential long-term performance. For our analysis we create working “zones” within our markets and compartmentalize properties within those zones before we start identifying like-kind comparables.  For those familiar with our area, there are many sub-markets, neighborhoods, and directional locations that can swing potential rental revenue from one area to the next. 
2. Bedrooms & Bathrooms – Larger is not always better. From a pure gross income standpoint, larger properties will tend to gross higher revenue numbers, however when measuring against purchase price and other carrying costs (utilities, insurances, taxes, upkeep, etc.), your ROI percentage can dwindle if not careful. Generally speaking, in the more traditional beach markets of the Cape Fear and Brunswick Beaches region, there are a lot of opportunities in the more modest 2-to-4-bedroom size range due to the increased demand from families and individuals wanting to getaway for shorter (think 3 to 5 nights), but more frequent trips. 
3. Pet-Friendly? – There are arguments on both sides of this decision. It comes down to a personal decision for a lot of property owners. Some may have allergies and simply cannot allow pets or dogs. Some feel their extra wear and tear may not be worth it. When analyzing income potential and the addressable market, there is no doubt, however, that allowing pets will have a positive effect on your income potential for your property. More times than not responsible pet owners will go the extra mile to make sure the property is well taken care of during their stay. Our advice is if you are on the fence about allowing pets, and there is not a specific safety reason that you cannot host them, we would suggest becoming pet friendly. 
4. Comp Sets – This is where we really start diving in the specific numbers and either historical or potential performance. There are a lot of new data analytics companies out there now that offer products to aspiring vacation homeowners and investors to gauge potential performance of a specific property. While these companies have done a good job of aggregating scraped data from some of the major Online Travel Agencies (OTA’s) like AirBnB and VRBO to help investors with analysis, it is still always good to verify these numbers with your realtor, or through a local professional management firm like Carolina Retreats. Availability is not always a good measure of a true “booking”, due to variables like Owner use, maintenance blocks, or taking homes off the rental market in the off season due to seasonality. 

While there can be many other variables when going through the decision-making process to invest in a vacation rental home, these can be considered sort of the “Big 4” in initial analysis and due diligence. Many times, in our local beach markets there are historical rental numbers on properties to help jump start your research, but as we are seeing in real-time 2021 has been a game-changer with new demand and potential revenue opportunities for traditional vacation rental homes. 

If you are contemplating the vacation rental investment market on Topsail Island, the Wilmington Beaches, or Brunswick Beaches and would like a little guidance to get you started, feel free to reach out to us and we will be happy help!